Canadian Imperial Bank of Commerce launched a new family of protected index funds on Dec. 4, 1998. The CIBC Five-Year Protected Funds are the first funds to guarantee 100% of the investor's initial investment over a five year period.
"[Protected funds and index funds] are the two fastest growing segments of the mutual fund market," said Ted Cadsby, president and CEO of CIBC Securities Inc.
The protection provided by the fund means that an investor can redeem his or her investment at any time for the market value, but after a five-year time period, the investor is guaranteed at least the full amount of the original investment, even if the market value has gone down.
While the five new funds can be used in combination to create a balanced portfolio, Cadsby said they are definitely not an appropriate investment vehicle for every investor. Because of the guarantee, some fees can be two to three times higher than for normal index funds, a factor that reduces the returns that the investor would normally receive. The funds are designed for the very conservative investor who is looking for a "safety net," Cadsby said.
The Five-Year Protected Bond Index tracks the Scotia Capital Markets Universe Bond Index; the Five-Year Protected Balanced Index tracks a combination of international and domestic indexes; the Five-Year Protected Canadian Index Fund tracks the TSE 300; the Five-Year Protected U.S. Index Fund tracks the S&P500 index, and the Five-Year Protected International Index Fund tracks the MSCI-EAFE Index.